Capital Structure, Corporate Taxation and Firm Age

Michael Pfaffermayr, Matthias Stöckl and Hannes Winner

No 424, WIFO Working Papers from WIFO

Abstract: This paper analyses the relationship between corporate taxation, firm age and debt. We adapt a standard model of capital structure choice under corporate taxation, focusing on the financing and investment decisions a firm is typically faced with. Our model suggests that the debt ratio is positively associated with the corporate tax rate, and negatively with firm age. Further, we predict that the tax-induced advantage of debt is more important for older than for younger firms. To test these hypotheses empirically, we use a cross-section of 405,000 firms from 35 European countries and 126 NACE 3-digit industries. In line with previous research, we find that a firm's debt ratio increases with the corporate tax rate. Further, we observe that older firms exhibit smaller debt ratios than their younger counterparts. Finally, consistent with our theoretical model, we find a positive interaction between corporate taxation and firm age, indicating that the impact of corporate taxation on debt is increasing over a firm's life-time.

Keywords: Capital structure; Corporate taxation; Firm age (search for similar items in EconPapers)
Pages: 32 pages
Date: 2012-04
New Economics Papers: this item is included in nep-acc and nep-bec
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://www.wifo.ac.at/wwa/pubid/44093 abstract (text/html)

Related works:
Journal Article: Capital Structure, Corporate Taxation and Firm Age (2013)
Working Paper: Capital structure, corporate taxation and firm age (2009)
Working Paper: Capital Structure, Corporate Taxation and Firm Age (2008)
Working Paper: Capital Structure, Corporate Taxation and Firm Age
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Persistent link: https://EconPapers.repec.org/RePEc:wfo:wpaper:y:2012:i:424

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